Hostel accommodation services for students and working women taxable at 18% GST, not exempt as residential dwelling

AAR Tamil Nadu ruled that hostel accommodation services provided to students and working women do not qualify as "residential dwelling for use as residence" under GST exemption notifications. The accommodation constitutes taxable supply of services requiring registration if turnover exceeds Rs. 20 lakh annually. Hostel services are taxable at 18% GST (9% CGST + 9% SGST) under tariff heading 9963. In-house food and other services provided with accommodation constitute composite supply, with the principal accommodation service determining the tax rate at 18% for the entire bundle.

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1. ISSUES PRESENTED and CONSIDERED

The judgment addressed the following core legal questions:

• Whether the hostel accommodation provided by the Applicant qualifies for exemption under Entry 12 of Exemption Notification No. 12/2017-CT (Rate) dated 28.06.2017 and its equivalent under the TNGST Act, 2017, and Entry 13 of Exemption Notification No. 09/2017-IT (Rate) dated 28.06.2017, as amended.
• Whether the Applicant is required to register under the GST Act if their aggregate turnover exceeds the threshold limit.
• What is the applicable tariff heading and tax rate for the supply of hostel accommodation services provided by the ApplicantRs.
• Whether the supply of in-house food to hostel inmates is exempt as part of a composite supply.
• Whether any other questions raised by the Applicant fall under the scope of Section 97(2) of the GST Act.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Exemption Eligibility for Hostel Accommodation

• Relevant Legal Framework and Precedents: The exemption under Entry 12 of Notification No. 12/2017-CT (Rate) pertains to "services by way of renting of residential dwelling for use as residence." The term "residential dwelling" is not defined in the GST Act, but guidance from the erstwhile service tax regime suggests it excludes temporary accommodations like hostels.
• Court's Interpretation and Reasoning: The court concluded that the hostel accommodation does not qualify as a "residential dwelling" because it is intended for temporary lodging and includes additional services like food and housekeeping, which are not typical of residential dwellings.
• Key Evidence and Findings: The Applicant's hostel is licensed under various acts as a commercial establishment, and the premises are used for providing accommodation services rather than as a residential dwelling.
• Application of Law to Facts: The court determined that the hostel's nature and operations did not meet the criteria for exemption, as the premises are not used as a residence in the traditional sense.
• Treatment of Competing Arguments: The Applicant's reliance on the Karnataka High Court decision in Taghar Vasudeva Ambrish was noted, but the court highlighted that a Special Leave Petition against this decision is pending before the Supreme Court.
• Conclusions: The services provided by the Applicant do not qualify for exemption under the specified notification entries.

Issue 2: GST Registration Requirement

• Relevant Legal Framework: Section 22 of the GST Act mandates registration for suppliers whose aggregate turnover exceeds twenty lakh rupees in a financial year.
• Court's Interpretation and Reasoning: The court held that the Applicant's services constitute a taxable supply under Section 7(1)(a) of the CGST Act, thus requiring registration if the turnover threshold is met.
• Conclusions: The Applicant must register under the GST Act if their turnover exceeds the specified limit.

Issue 3: Tariff Heading and Tax Rate

• Relevant Legal Framework: Notification No. 11/2017, Central Tax (Rate) outlines the applicable tax rates for various services, including accommodation services under Heading 9963.
• Court's Interpretation and Reasoning: The court classified the hostel services under Heading 9963 and determined the applicable tax rate as 9% CGST + 9% SGST.
• Conclusions: The supply of hostel accommodation services is taxable at the specified rate under the relevant notification.

Issue 4: Composite Supply and Tax Rate for In-house Food

• Relevant Legal Framework: Section 2(30) of the GST Act defines "composite supply," and Section 8 specifies the tax treatment for such supplies.
• Court's Interpretation and Reasoning: The court found that the provision of food is part of a composite supply with hostel accommodation as the principal supply. Thus, the tax rate for the composite supply is the same as that for hostel accommodation.
• Conclusions: The composite supply, including in-house food, is taxable at 18%.

Issue 5: Other Questions

• Conclusions: No ruling was issued for questions outside the scope of Section 97(2) of the GST Act.

3. SIGNIFICANT HOLDINGS

• Core Principles Established: The judgment clarifies that hostel accommodations do not qualify as "residential dwellings" for GST exemption purposes and emphasizes the need for strict interpretation of exemption notifications.
• Final Determinations on Each Issue:
• Hostel accommodation services are not exempt under the specified notification entries.
• The Applicant must register under GST if turnover exceeds the threshold.
• The applicable tax rate for hostel accommodation services is 18%.
• The supply of in-house food is part of a composite supply taxable at 18%.
• No ruling on questions beyond the scope of Section 97(2) of the GST Act.

Verbatim Quotes of Crucial Legal Reasoning:

• "Exemption notification should be interpreted strictly; the burden of proving applicability would be on the assessee to show that his case comes within the parameters of the exemption clause or exemption notification."
• "The purpose and objective of the notification is nothing but to avoid taxing residential properties taken on rent by family or individuals and the benefit of exemption is not extended to the premises which do not qualify as residential dwelling for use as residence."

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